February 2014: Bond ETFs gathered some momentum last month

An economic indicator: Why fund flows should concern investors (Part 7 of 7)

(Continued from Part 6)

For the past one month, from January 24 to February 26, 2014, investors appear to be piling into exchange-traded bond funds at the fastest pace ever—the latest sign of a bond market revival driven by uneven economic data, emerging-market volatility, and the thirst for income-generating investments. The U.S.-listed bond ETFs have taken in $16 billion this month through February 21, 2014.

Investors in fixed income ETFs and bond ETFs may want to check how much money has flown into or out of the sector in past one month. The top fixed income ETFs that garnered the most fund inflows were iShares 1-3 Year Treasury Bond ETF (SHY) with an inflow of $3.58 billion; iShares iBoxx $ Investment Grade Corporate Bond ETF LQD with a $0.9 billion inflow; Vanguard Total Bond ETF (BND) with $0.79 billion; iShares Core Total U.S. Bond Market ETF (AGG) with $0.31 billion; and SPDR Barclays Capital High Yield Bond ETF (JNK) with $0.24 billion. The ETFs that saw most outflows were iShares iBoxx $ High Yield Corporate Bond ETF, HYG with net outflow of $1.05 billion; and TIPS Bonds ETF with net outflow of $0.24 billion for past one month.

The inflow highlights the growing uncertainty about the global outlook for interest rates and economic growth. A slowdown in China and reversals in markets such as Turkey and South Africa have affected some poorer nations’ stocks and currencies this year. Bonds, considered a safer investment, have benefited from the cash torrent in the U.S. and around the globe. The Fed has begun the so-called tapering process, reducing monthly stimulus to $65 billion from $85 billion at the end of last year. But the Treasury prices have risen, driving yields lower, raising questions about the strength of the U.S. economic recovery amid a brutal winter for much of the nation and a rough patch for many markets in poorer nations.

The shift into bonds partly reflects the reversal of last year’s bond-market selloff. Investors withdrew as much as $11 billion between June and December from bond ETFs after the Fed officials in May began signaling that they intended to reduce bond purchases.

Take a look at the detailed analysis on latest weekly flow of fund in Weekly Fund Flows: High yield bonds and leverage loan ETFs.

Browse this series on Market Realist:

• Part 1 - Must know: Why should investors follow fund flow data carefully?

• Part 2 - A quick recap: The fund flows and the ETF market in February

• Part 3 - Market scenario: Equity ETFs outperform high yield bond ETFs